This is where your finance takes place

Every month, it’s the same thing. You deposit your pay stub and the next day, nothing’s left. If your monthly payments are too high and you are struggling at the end of each month, the consolidation loan might be an option. In this article, we will explore this financial tool and the idea behind it.

Definition

A consolidation loan is a regular personal loan. The main difference lies within the need. This type of loan is used to pay off other debts such as credit cards, lines of credit or other personal loans. In many cases, the individual accumulated too many debts on his revolving credit account and wants to be brought back to a define monthly payment.

The rate and term of the loan are determined by the regular personal loan’s rules. The bank might charge a higher interest rate as this type of loan is more risky for them. As the main goal is to regroup all debts under one loan and decrease the payments, most loans will be on a five years term.

Needs

As previously mentioned, the consolidation loan was created to pay off other debts. This is the main reason why financial institutions will most likely request to close all revolving credits. This financial product helps to decrease monthly payments but also forces you to respect a budget.

In fact, by cutting off your credit cards, you will decrease significantly your psychological buying power. I use the word “psychological” as many individuals consider their granted limit or their credit cards as a mean to finance goods. Some people literally use them as they were with unlimited funds. The personal can’t be increased unless you apply gain for more money. Therefore, you will be more controlled over you spending habits.

Qualifications

As long as you don’t wait until the last minute, you should be able to qualify for a consolidation loan based on your credit rating and your TDSR. Most institution will consider your TDSR after consolidation. Unfortunately, we often see people applying for this kind of loan when they already missed payments or when they have too many debts to consolidate. My advice to you is to consolidate your debts as soon as you realize that you won’t be able to pay more than the minimum payment required on your credit cards. You should also close any revolving accounts in order to re-establish a well balance budget.

Negotiation

When an individual applies for a consolidation loan, it means that he definitely needs the help from others. This immediate need for credit reduces his negotiation power to nil. Several lenders will make a “take it or leave it” offer. If you really need this loan, you will have to take it as offered.

To conclude on the consolidation loan, I must remind you that the faster you consolidate the better your chances to get rid of your debts are. The consolidation is the action of bringing together more than one debts. That will help to reduce your monthly payment and will put you on a fixed repayment schedule. Be sure to not waste the money saved by consolidating. If you do so, you will be soon in the same bad situation and you might not be able to consolidate your debts again.

There is a little piece of plastic that will follow you everywhere you go and I’m not talking about your driver’s licence. In the 21st century, the credit card has become the men’s best friend or should I say worst enemy? In fact, a credit card can be both. Some use it to gain points for free gifts, others report all their obligations on it a pay huge amount of interest.

Definition

A credit card gives you the access to a predetermined amount of money. This maximum limit can be increased and decreased by both the individual and the grantor. The amount is revolving as the holder of the card makes his payment. A minimum payment is requested every month in order to cover the interest and a very small amount of capital.

The interest rate on a credit card is a major negative point. It can go up to 30% for some retailer’s credit cards. However, you have now the option to pay a fixed amount of money per year in order to have a better rate. The term of this option defers from one institution to another.

Many other features are now offered to get credit cards more attractive to the population. Several cards offer reward programs like points or cash back. You can also purchase all kind of insurance from life insurance to extending warranty on purchased goods.

Needs

While most people use the credit card to spend money they didn’t earn yet, others use it to build a strong credit history. In addition to that, by using some of the options such as cash back rewards and by paying off your balance every month, usage of credit cars could be a very powerful tool to manage your personal finance. In fact, by paying the full amount owed on your cards, you will not pay interest. Therefore, you will benefit from many advantages without paying astronomical interest rate! This technique requires self control and a lack of maturity could end up in a complete financial disaster. Credit cards should be used for short term need and to get reward from several features.

Qualification

The credit card is the easiest product to qualify for. Credit cars companies are mostly interested in one thing; your credit bureau. With this report, they will be able to determine if you can pay back your debts. In many cases, your Beacon Score will be the determinant factor. The limit granted will vary according to your credit score and your declared income. It is very rare they would request for proof of income and assets as they can validate your employment with your Credit Bureau.

Negotiation

There is not much room for negotiation on credit cards. Grantors will increase your limit from time to time and will offer their clients to pay an additional amount every year to qualify for a better rate or to get reward programs.

As you can conclude, the result of your credit cards usage is up to you. You can crumble under high interest rate or you can use it to build your credit history and benefit from a lot of goodies. In the end, it’s only a matter of self control.

You are planning to renovate your kitchen but you don’t know how much it will cost and you don’t need the full amount right away as you want to purchase the material over a few months. The line of credit might be the financial product for your project.

Definition

A line of credit, also known as flex line, is an amount of money that is available anytime. There is no need to get the full amount on day 1 as you can access your account with a client card, cheques and even with internet. The limit granted by financial institution represents the maximum amount you can withdraw.

The rate on a line of credit is always variable. This rate is related to the prime rate. Rates can go from prime + 0 to prime + 7% and even more depending on your profile and the financial institution.

The payment for each month will also depend on the lender’s policy. Some request a minimum payment as small as the monthly interest and others ask for 3% of the balance. Other agreements can also be made depending on the situation but most institutions go with a percentage of the balance.

One of the major characteristic of this product is that the amount of money is revolving as long as the line of credit is opened. This means that you are allowed to withdraw money from the flex line after you made a lump sum payment. Most institutions will request that the line of credit fluctuate over time as it is not meant to be maxed out all the time.

Needs

When you apply for this product, the need for money is usually known, but the amount needed is not defined. Lines of credit are good for projects like renovation, wedding, starting a company or an overseas trip. It gives flexibility to the individual as he has the opportunity to withdraw according to his needs and the minimum payment is less than on a personal loan. As the line of credit grants more possibility in your financial planning, you must remain vigilant with its usage. Paying interest only months after months will result into high interest cost at the end of the year.

Qualification

For most banks, more flexibility means more risk for them. Therefore, it is harder to qualify for this type of loan. A minimum income and a well established credit history is required on a regular basis. If your income is too low, some institution will also take their decision based on your net worth. Most institutions will consider 10% of you net worth as the maximum amount for a flex line. Some special programs for students and new companies exist as well. Lenders will always request a low TDSR as well. If you don’t qualify, you might want to resubmit with a co-applicant or try to qualify for a personal loan.

Negotiation

As the rate is established according to your credit history and the amount requested, you might be able to negotiate this point. Having a good repayment history will also help you to review the minimum monthly payment. With a high net worth, you can also ask to revise the approved amount.

To resume this product, we might say that the line of credit is one the most financial product. It is harder to qualify for because the amount granted is revolving. Therefore, it requests a better financial planning.